Tweaking of QFI scheme may lead to more takers

In recent years, captivated by the Indian growth story, the global investor community has been keen to participate in the Indian capital markets. However, until recently, access to investment opportunities in India was by and large limited to foreign institutional investors (FIIs) and foreign venture capital investors (FVCIs).

Invitation widened

In recent times, the government has recognized that the economy would be better served by enabling foreign investors, provided they meet certain eligibility criteria, to directly invest in Indian securities. Besides reducing volatility and increasing inflows, it was hoped that the move to attract a more diversified investor base would ultimately lead to the deepening of the Indian capital markets.

Pursuant to an announcement in the Union Budget of 2011-12, eligible foreign investors, referred to as qualified foreign investors (QFIs), were permitted to directly purchase mutual fund schemes without prior registration with the Securities and Exchange Board of India (SEBI). Since early this year, the QFI framework has been expanded to include investment in equity as well.

Subsequent to a press release of the Ministry of Finance, the Reserve Bank of India (RBI) and SEBI issued a series of circulars in July to allow eligible QFIs to invest in the corporate bond market for the first time. Concurrently, the RBI and SEBI have also eased certain norms pertaining to the QFI mechanism, key aspects of which are highlighted below.

Sawant Singh is a partner, Aditya Bhargava is a senior associate and Davis Kanjamala is an associate at the Mumbai office of Phoenix Legal.